9% won’t be enough

by Helen Hunter

If you are relying on the nine per cent Superannuation Guarantee for retirement, you may want to seek advice about what sort of life is possible with only the minimum employer contribution.

Most experts agree that it could take 35 to 40 years of continuous service to achieve adequate savings to fund a reasonable retirement relying on the nine per cent compulsory Super Guarantee. Even 30 years of service may be hard for some teachers to accrue, especially women. For women, broken service, usually for family reasons and part time/casual work will only add to the inadequacy of the super guarantee.

A 2004 study by ANOP Research Services, commissioned by Association of Superannuation Funds of Australia (ASFA) of 30 to 69 years olds found that 70 per cent of people recognised that nine per cent compulsory superannuation is not enough for most people to have a comfortable retirement. It is commonly agreed that 15 per cent contributions would increase retirement benefits significantly. This is the figure that the Prime Minister Paul Keating advocated when the Super Guarantee was introduced.

Research by ASFA reported in Superfunds (November 2004) showed that:

• Single people were more likely to be less well off; less well prepared than people with joint plans.
• Of those who were less well off, it was more likely to be women.
• 35 per cent expected to receive an age pension.
• Increasingly, early retirement was seen as less desirable due to lack of necessary financial resources.
• Of those who had retired, financial difficulties was given as the most important reason for disappointment in retirement.
• Extra time available would not be enjoyable if financial security was a major concern.

What are the options?

1. Start making your own contributions. Start as soon as possible. When you receive a salary increase may be a good time to begin. If you can salary sacrifice into your fund, there are tax advantages.

2. Work longer. But will teachers want to do this? Will this affect the teacher's health? There is talk of people being able to retire, get their superannuation but also be able to work, however, this has not been legislated. Perhaps part time teaching is possible but most teachers I know want to leave teaching at retirement age and not return to the classroom. Will this be the necessary compromise?

3. Downsize or sell the family home. This raises many issues. Where will the home be? Will it be close to the previous home? Or will it be closer to children? Or away from friends? Or will it be near a holiday site?

4. Invest in property. Is it possible to afford to buy an investment property? Will house prices continue to rise? What are the risks?

5. Invest in shares. There are significant risks including large fluctuations in the markets.

An increased contribution from the government is unlikely. ACTU Secretary Greg Combet suggested in Superfunds (December 2004/January 2005) that unions need to bargain for increased contribution rates so as to fund adequate super for retirement. However, with the industrial relations changes proposed by the Howard Government, unions are fighting to maintain the status quo and improvements to employer contributions are even more remote.

Remember that superannuation is the second largest asset people acquire, after the family home. It is important to be informed about super. Don't put off thinking, seeking financial advice or then acting on that advice. The sooner you do act, the better.

Some web sites and references you may find helpful:

www.actu.asn.au/super/policy, www.superannuation.asn.au/policy, www.selectingsuper.com.au/ratings, www.ssfs.com.au (State Super Financial Services) and the Superfunds magazine, available in the Teachers Federation Library.

Helen Hunter is an Anna Stewart Officer for term 4. This article is the opinion of the writer and is of a general nature. It is not financial advice. It is intended to start teachers thinking about their superannuation.

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Last Modified: 15 Nov 2005